As was widely reported last week -- and picked up by Edward Hugh this morning -- China's economy is a lot bigger than we thought. From the Wall Street Journal (page A12 of the print edition):
The world's fastest growing large economy, China, has just gotten nearly 17% bigger. Beijing on Tuesday said it has recalculated the size of its economic output in 2004 to better reflect the activity of consumers, as opposed to manufacturers.
The impact is that China's gross domestic product was 16.8% larger in 2004 than previously known. China, therefore, ranked as the sixth largest global economy last year instead of seventh, moving ahead of Italy but holding behind France.
The new figure for 2004 GDP is 15.988 trillion yuan, or about $1.931 trillion based on the exchange rate then, compared with 13.688 trillion yuan as calculated under the previous method, according to the National Bureau of Statistics.
The main difference is that China relied on consumer activity and services for 40.7% of national economic output last year, compared with just 31.9% as previously reported. The change is the result of the statistics department's first economic census.
A bigger services economy means China's economy is healthier than previously known since it relies less on manufacturing and exports. It is also richer per capita. Plus, the bigger size of the economy suggests China is more efficient in allocating investment, which based on the old statistics had reached worrying levels.
That revision reminded me of an item posted at Sun Bin about a week ago. This graph, copied from Sun Bin's item, shows the service sector share of total output across the world:
In that earlier picture, China clearly looks to be a significant outlier in its reliance on manufacturing. With these new statistics, the China part of the map turns to green, in the same category now as India. As Sun Bin notes, the service sector share of GDP "shows strong correlation to GDP/[per capita]".
Meanwhile, page A12 of this morning's Wall Street Journal also includes this story:
Japan's real economic growth is likely to slow next fiscal year but prices should increase after eight years of declines, the government said, suggesting the fight against deflation may end soon.
In an economic forecast issued yesterday, the government also stressed it will remain cautious when declaring an end to deflation, apparently warning the Bank of Japan against ending its ultraeasy monetary policy too soon.
The gross-domestic-product deflator, which widely reflects consumer prices, will rise 0.1% in fiscal 2006 after falling an expected 1.1% this fiscal year, according to the forecast, which was approved by a cabinet meeting...
Japan's real gross-domestic-product growth is expected to slow to 1.9% next fiscal year from this year's expected 2.7%, as growth in private consumption and capital spending moderate from this year's exceptional strength, the cabinet office said in a forecast it compiles each year to help officials plan policy...
If the forecasts are realized, the government would meet its long-term goal of ending deflation and achieving nominal GDP growth around 2% next fiscal year
That roughly 2 percent real growth rate still seems on the low side compared to the United States. Population growth in Japan is about 1/2 zero percent compared to about 1 percent in the U.S., implying that estimates of potential U.S. GDP growth per capita remain a good bit above Japan's. But the slower growth of Japan, and every other developed economy, relative to China is no big surprise. Emerging economies -- where the fruit hangs low and the returns to relatively scarce capital are high -- ought to grow substantially faster than developed economies (at least until they themselves join the developed economy club). Given that Japan is shooting for no deflation and 2 percent real growth, their forecast looks like success.
UPDATE: My friend Edward Hugh, he of Fistful of Euros and A Few Euros More, caught me in a moment of brain lock. In my original post I described population growth in Japan as about 1/2 percent, having read 0.05% as 0.5%. The mistake is corrected above. Thanks Ed.